History of Islamic Banking: Its Past, Present & Future

For a long time now, the idea of operating Islamic banking has generated a lot of debate or argument, especially in Nigeria which has different religions. I was therefore excited when I was handed this book by a former boss of mine on his return from a World Bank conference in the United States of America recently. At least, reviewing it will shed more light on the supposed grey areas of Islamic banking.

The most important development in modern banking is the art of mobilizing funds for investment. It happened to be that the method of both collecting and using of funds was based in the West on the interest paid and charged. In contrast Islamic Banking is a system that provides financing and attracts savings on the basis of profit and Loss sharing. The Central feature of Islamic Banking is that no interest would be charged or paid and the returns would be in the form of profits from trade in which the money lent or borrowed is invested. For Muslims this system of Profit or Loss sharing coincides with their prohibition of interest, and helps in mobilizing unused funds for investment and creating new job opportunities. As for non-Muslims, the Islamic Banking system doesn’t contradict their faith, while it provides the society with alternative ideas for venture capital and other tools of investment.

Microfinance shares the same goals as Islamic finance. Islamic Banking began as an effort for Muslims to engage in financial services consistent with the principles of the Shariah, which promotes social and economic fairness. Likewise, the modern microfinance revolution began as an effort to combat poverty and social injustice in developing countries. Both the principles of Islamic finance and microfinance seek to prevent economic exploitation by prohibiting usury. In 2006, in recognition of the great humanitarian impact of microfinance, the Nobel Committee awarded Muhammad Yunnus and the Grameen Bank the Nobel Peace Prize.